RBI norms to impact fund inflows

THE average assets under management (AAUM) of the mutual fund (MF) industry ��� based on the data of 33 out of 39 fund houses that have declared their numbers so far ��� aggregated Rs 7,13,883 crore, which is higher by about 3% compared to the previous month. All the top five fund houses have shown a marginal increase in their AUMs except for the top fund house ��� Reliance which has seen its asset base shrink by about 1.2% since September ���09.

The increase in asset base is obviously due to substantial inflows from non-retail investors such as corporates and banks after the withdrawals in September 2009 on account of advance tax payments. Again, having withdrawn heavily from MFs in September, banks too appear to have redeployed their idle funds with the industry.

Data released by RBI shows that for the fortnight ended October 9, 2009, banks had an outstanding investment to the tune of Rs 1,28,772 crore with MFs. The period saw banks nearly double their short-term investments with MFs from Rs 66,687 crore for the fortnight ended September 25, 2009.

Banks have been rather proactive in deploying their excess liquid cash with MFs since the beginning of the current calendar year. Given the liquidity overhang in the absence of good lending opportunities, banks appear to have identified MFs as the best vehicle to park their short-term idle funds.

This has proved a boon for the MF industry which has seen its asset base jump from about Rs 4.6 lakh crore in January 2009 to around Rs 7.5 lakh crore by the end of September 2009. This is especially significant at a time when the industry has been finding it tough to attract investors after the recent Sebi fiat on commissions.

With RBI now indicating that banks need to improve governance norms relating to investments in MFs, this asset race is set to get a tad more difficult for fund houses.

This is yet another nail in the coffin for the MF industry, which is yet to recover after Sebi scrapped the entry load for equity investments. While Sebi���s move has already dampened the growth of equity assets of this industry, RBI���s move is sure to impact debt inflows too in the coming months.